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Spending by oil majors has held steady, but independents and smaller producers have cut their capital spending (capex) this year by at least a third because of weak cash flow and a lack of borrowing access, a survey by energy investment bank Tristone Capital reported Friday.

Producers that spent less than $10 billion in 2008 are expected to reduce their outlay by at least 30% in 2009, the Tristone survey of 205 companies said. Based on the survey, total spending will be down around 17% from 2008, with most of the reductions in North America.

"Companies are struggling to make definitive business plans in this extremely uncertain and volatile environment," Tristone reported.

The largest producers -- including ExxonMobil Corp., Royal Dutch Shell plc, BP plc, Chevron Corp. and Total SA -- each spent more than $10 billion in 2008. With commodity prices high through most of the year, the group kept "the financial flexibility to continue to spend on multi-year projects already under development and less flexibility to cut spending on committed projects," the report noted.

Historically, noted Tristone, spending by those five producers was closely tied to oil and natural gas prices. Based on the current prices, "historical relationships would suggest capex would fall 30-35%." However, the majors to date have announced only modest pullbacks, and many have kept their capex flat from 2008.

However, Tristone said the majors could be forced to cut more capex not only this year but into 2010 if commodity prices don't increase.

"Many budgets were announced in late 2008 or early 2009 and commodity prices have weakened substantially since then, especially for natural gas," noted Tristone. "If the commodity and capital markets remain weak, we expect additional cuts will be necessary due to the impact on cash flow and the lack of external financing available."

The industry slowdown likely will force cuts to operating costs, which "should have the favorable outcome of lowering breakeven costs for marginal production, including oilsands," Tristone said.

Another outcome from reduced spending this year could be a rebound in commodity prices once the world economy begins to recover, said Tristone.

"With reduced spending, the upstream industry will be challenged to replace the annual production decline rates of 7-9%," the report noted. "We are already seeing evidence of declines in non-OPEC stalwarts Russia and Mexico, and the impact will become increasingly pronounced beyond 2010 when demand recovers and the market burns off OPEC spare capacity."

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